How to “become” a tax resident in Bulgaria is a topic that arouses increasing interest among foreign individuals and legal entities. The questions we often receive from clients are diverse and involve different aspects of this process. For example, should income be declared from abroad, and if so, how exactly does this declaration take place? Clients also ask about the differences between declaring labor income from abroad and other types of income, the interest being to find out whether income from abroad is declared in a different or even easier way.
Other issues of concern to our clients include what it means to be a resident for tax purposes in Bulgaria and how this affects their tax obligations. Some clients are interested in the procedures and required documents for obtaining a certificate of resident, asking if there is an option to submit an application online or if they can obtain a certificate of resident in English. For those who have received income in Bulgaria, the question arises as to what are their obligations in terms of withholding tax, especially when it comes to a foreign natural person.
It is also important to pay attention to the issues related to residence in Bulgaria. For example, clients ask how long they can stay in the country, what are the requirements for continuing residence in 2024, as well as how they can get a long-term residence permit. Of particular importance is the question of what “jurisdiction of a resident for tax purposes” means and how this affects their tax obligations.
All these issues are essential for successful orientation in the tax and legal system of Bulgaria. The Elan Consulting team is here to provide full support and expertise, whether it is an individual or a legal entity. We are available to help not only in Sofia, but also in Burgas, Pomorie, Karnobat, Sunny Beach, Aytos, Nessebar, Sozopol, Primorsko and the whole of Bulgaria. This article will examine in detail all the necessary steps and requirements for obtaining the status of tax resident in Bulgaria, as well as the important aspects related to declaring income from abroad and tax liabilities.
The term “resident for tax purposes” in Bulgaria is defined in several key legal acts that regulate the taxation of individuals and legal entities. According to Art. 4, para. 1 of the Personal Income Taxes Act (ZDDFL), a local natural person regardless of nationality is a person who meets one or more of the following conditions: has a permanent address in Bulgaria, resides on the territory of Bulgaria for more than 183 days in any 12-month period, is sent abroad by the Bulgarian state, authorities or enterprises, or whose center of vital interests is in Bulgaria. This last condition is determined by factors such as the location of the family, real estate, place of work, professional or business activity, and the place of property management.
For the purposes of corporate taxation, the local legal entity is defined in Art. 2, para. 1 of the Corporate Income Tax Act, which states that it is a legal entity established under Bulgarian legislation, as well as cooperatives registered in the country. In addition, in paragraph 2 of the same article it is added that local legal entities for tax purposes are also foreign persons who carry out business activities in Bulgaria through a certain base.
When it comes to a natural person who resides on the territory of Bulgaria for more than 183 days within 12 months, he is considered a resident for tax purposes for the relevant year. This definition is essential, since local persons are subject to taxation both for income acquired in Bulgaria and for income from abroad (Art. 6 para. 1 of the GDPR). On the other hand, foreign persons are taxed only on income acquired from sources in Bulgaria (Article 7 of the GDPR).
It is important to note that a resident can be a person who has a permanent address in Bulgaria, but if the center of his vital interests is not located in the country, then this person is not considered a local for tax purposes (Art. 4, para. 5 of the GDPR). The center of vital interests is a concept that requires a deeper analysis of the person's personal and economic ties to the country, and is applied in a way that allows flexibility in the assessment of specific circumstances.
From the point of view of documentary provision of this status, it is important to obtain a certificate of a resident for tax purposes. This certificate serves as proof to the tax authorities both in Bulgaria and abroad that the person or legal entity is resident for tax purposes in Bulgaria. Such a certificate can also be issued online, and the forms and procedures are strictly regulated by the competent authorities.
The meaning of the term “resident for tax purposes” is particularly important in the context of international tax law and the tax agreements that Bulgaria has with other countries. For example, in cases of double taxation, resident status for tax purposes may determine which jurisdiction is entitled to tax a particular income.
According to international tax treaties established through the SIDDO (Agreement for the Avoidance of Double Taxation), a resident for tax purposes has certain rights and obligations that are aimed at avoiding double taxation and ensuring fair tax treatment.
Companies are actually considered local for tax purposes automatically when they are registered in Bulgaria. According to Art. 2, para. 1 of the Corporate Income Tax Act (CCPA), any legal entity that is incorporated under Bulgarian legislation is considered a resident for tax purposes. This means that regardless of the factual circumstances such as the place of management or the main activities of the company, the very fact of registration in Bulgaria automatically determines its status as a resident for tax purposes. This approach is entirely legally conditioned and does not require additional assessment or analysis of other factors.
Unlike legal entities, natural persons are not automatically considered to be residents for tax purposes only on the basis of their registration or the presence of a permanent address in Bulgaria. For individuals, the legislation introduces additional criteria that must be met in order to determine their tax residence. According to Art. 4 (1) of the Personal Income Taxes Act (ZDDFL), a natural person is considered a resident for tax purposes if he meets at least one of the following conditions:
It is important to emphasize that in the case of individuals, there is a possibility that a person may have a permanent address in Bulgaria, but not be a resident for tax purposes, if his center of vital interests is not located in the country. The center of vital interests is determined by factors such as the location of the family, real estate, the place of work, professional or economic activity, and the place of property management. If these factors indicate that the main interests of the person are outside Bulgaria, he may not be considered a resident for tax purposes, even though he has a permanent address in the country.
This distinction between individuals and legal entities is key to understanding the tax regime in Bulgaria. While companies automatically receive local tax status upon registration, individuals are subject to a more complex and detailed assessment of factual circumstances. This approach ensures greater flexibility and fairness in taxation, taking into account the individual circumstances of individuals who may also have significant links with other countries.
The term “the center of vital interests of an individual is located in Bulgaria” plays a key role in determining the tax status of a person as a resident for tax purposes in Bulgaria. This concept is related to the analysis of a person's personal and economic ties with the country and includes an assessment of various factors that determine whether the center of his vital interests is in Bulgaria or not.
The center of vital interests is the place where a person has the strongest personal and economic ties. This includes analyzing various aspects of the person's life, such as the location of the family, the presence of real estate, the main place of work or business, as well as the place where the person manages his property and makes his main expenses. For example, if the person's family lives in Bulgaria, and the person himself owns and manages real estate here, has an economic activity or an employment contract with a Bulgarian employer, these circumstances may indicate that the center of his vital interests is in Bulgaria.
The legislation, in particular the provisions of the Personal Income Tax Act (ZDDFL), places emphasis on a comprehensive analysis of these links in order to determine where the center of vital interests is located. It is not necessary for all these elements to be present at the same time; it is sufficient to establish that the main personal and economic interests of the person are related to Bulgaria. For example, if a person works and lives in another country, but his family remains in Bulgaria and he continues to manage his business or investments here, it can be assumed that the center of his vital interests is in Bulgaria.
Judicial practice also emphasizes the importance of these factors in determining tax status. In numerous decisions, the Bulgarian courts have confirmed that personal and economic ties with Bulgaria are decisive in establishing the center of vital interests. If the main part of a person's personal and professional life develops in Bulgaria, this is sufficient reason to assume that the center of his vital interests is here, even if the person resides a significant part of his time outside the country.
When considering such cases, tax authorities and courts take into account both objective facts, such as the location of real estate and income, as well as subjective elements, such as the intention of the person to maintain lasting ties with Bulgaria. This may include continued participation in the social and cultural life of the country, as well as any other indicators that indicate that the person intends to remain connected to Bulgaria in the long term.
After all, when talking about “the center of vital interests of an individual is located in Bulgaria”, we are talking about a complex and multilayered analysis of the relations of this person with the country. Legislation provides a framework, but each specific case requires an individual approach that takes into account all relevant facts and circumstances.
The Bulgarian administrative courts consider the tax resident status of an individual in Bulgaria taking into account the specific circumstances of the case and the relevant legal provisions. According to judicial practice, the most important criteria for determining tax resident status are related to the person's residence in Bulgaria and the center of his vital interests.
The first important criterion is related to the length of stay in Bulgaria. According to Art. 4, para. 1 of the Personal Income Taxes Act (ZDDFL), if a natural person resides on the territory of Bulgaria for more than 183 days in any 12-month period, he is considered a resident for tax purposes. Administrative courts, including the Supreme Administrative Court (SAC), have considered cases in which individuals have resided for a significant part of their time in Bulgaria and have found that these persons are resident for tax purposes, regardless of other factors.
The center of vital interests is another key factor that is considered by the courts. Judicial practice shows that when the main personal and economic interests of a person are related to Bulgaria, that person is considered a resident for tax purposes. An example of this can be the presence of a family, real estate, main work or business activity in Bulgaria. In Decision No 13962 of 14.11.2018 under Administrative Law No 7944/2018 of the Supreme Administrative Court, the court affirms that if the person maintains close ties with Bulgaria, including family and economic ties, then this is sufficient to be considered a resident for tax purposes within the meaning of the ZDDFL.
Also, court decisions often take into account special cases related to double taxation, especially when it comes to persons who have the status of residents in other countries as well. In these cases, the courts apply the International Tax Treaties (ISTAs) between Bulgaria and other countries. For example, in Decision No 2298 of 15.12.2023 on Administrative Court No 1363/2023 of the Administrative Court - Plovdiv, the court referred to the Agreement on the Avoidance of Double Taxation between Bulgaria and Ukraine in order to establish that a person with Ukrainian citizenship who is temporarily resident in Bulgaria cannot be considered as a resident tax purposes under the SIDDO, even though it meets some of the criteria of the GDPR.
Here are 10-15 examples from case law that can help to understand in more depth the question of when Bulgarian administrative courts consider an individual to be a tax resident of Bulgaria:
These examples illustrate the variety of cases that Bulgarian administrative courts consider in determining the tax resident status of individuals in Bulgaria. Each case is unique and is considered in the context of specific facts and circumstances.
Judicial practice emphasizes that determining the status of a tax resident of a natural person in Bulgaria is not just an automatic action based on a certain number of days spent in the country. Instead, the courts conduct a detailed analysis of all existing circumstances, including the person's intentions, as well as his personal and economic ties to Bulgaria. In cases where there is a dispute on the matter, the courts tend to assume that the person is local for tax purposes if there is strong evidence of close ties with Bulgaria, even if the person also holds another type of citizenship or resident status in another country.
The possibility of a company registered in Bulgaria not being considered a tax resident in Bulgaria is in principle extremely limited and is based on specific circumstances that deviate from the usual rules for determining the tax status of legal entities. In the normal case, any legal entity that is registered under Bulgarian law is considered a resident for tax purposes. This is based on the principle that companies registered in Bulgaria automatically receive the status of local taxpayers, since it is assumed that they carry out their activities and manage their assets mainly in the country.
However, there are exceptional cases in which a company, despite being registered in Bulgaria, can be considered a tax resident of another country due to the provisions of international tax treaties known as Double Taxation Avoidance Agreements (SIDDOs).Such agreements may contain provisions which stipulate that if the legal person has its actual management and control outside Bulgaria, it may be considered a tax resident in another country where such control is exercised.
A major factor that can influence this decision is where the effective management of the company is located. If the company is registered in Bulgaria, but its management and control are carried out from abroad, and if the relevant SIDO stipulates that the tax resident status is determined on the basis of the location of the management, then it is possible to consider the company as a tax resident of the country where this office is located. This approach is based on the principle that the place where the key management decisions are made and the strategic direction of the firm is carried out is decisive for determining its tax status.
However, these situations are rare and require serious justification and evidence that the real management of the company does not take place in Bulgaria. In the event of a dispute, the tax authorities and the courts will consider the specific facts and circumstances, referring to the relevant SIDDO, in order to determine the tax status of the company.
In order to avoid a situation in which a company registered in Bulgaria is considered a tax resident of another country, it is important for legal entities to ensure that management and control are carried out mainly from the territory of Bulgaria. This includes holding management meetings in Bulgaria, making key decisions by persons located in the country, and carrying out the main activity from Bulgaria.
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Certificates of “tax resident” in Bulgaria are issued on the basis of clear legal provisions that determine the status of a resident for tax purposes. These certificates are necessary to prove the tax status of individuals and legal entities before foreign tax administrations, especially in the context of the application of international conventions for the avoidance of double taxation.
The basis for issuing a tax resident certificate is related to the establishment of the fact that a person, natural or legal, meets the criteria for a resident for tax purposes according to Bulgarian legislation. In the case of individuals, this status is determined by several key factors, including the presence of a permanent address in Bulgaria, the length of residence in the country, as well as the location of the center of the vital interests of the person. For example, if a person resides on the territory of Bulgaria for more than 183 days within 12 months or if his main personal and economic interests are in the country, he is considered a resident for tax purposes.
In addition to the national legislation, the basis for issuing the certificates also includes the International Treaties for the Avoidance of Double Taxation (IDUs) to which Bulgaria is a party. These agreements often contain specific definitions and criteria for determining the tax resident status of persons, which may differ from the general internal rules. In such cases, the tax authorities shall apply the relevant provisions of the Treaties in order to determine whether the person is to be treated as a tax resident of Bulgaria or of another Contracting State.
The procedure for issuing a certificate begins with the submission of a request to the National Revenue Agency (NRA). Applicants must provide information and documents that prove they meet the requirements to be a resident for tax purposes. The NRA examines the information provided, taking into account both national legislation and relevant international agreements, and issues the certificate in cases where it is established that the person is a tax resident of Bulgaria.
In order to obtain a certificate of resident for tax purposes (also known as Certificate of Tax Resident) in Bulgaria, it is necessary to follow a few basic steps, which include submitting an application and providing the necessary information to the National Revenue Agency (NRA). This certificate is necessary when a Bulgarian natural or legal person needs to prove to a foreign tax authority his tax status in Bulgaria.
The service of issuing a certificate for a resident can be used by both natural and legal persons who are resident for tax purposes in Bulgaria and are registered in the NRA register. This certificate is especially important for individuals who have income or other tax obligations abroad and need to avoid double taxation by proving that their main tax obligations are in Bulgaria.
The process begins with the submission of an “Application for the issuance of a certificate of a resident” according to an approved template. The request can be submitted in several different ways. You can do this in person at an NRA office, through an authorized person, or through a licensed postal operator. It is also possible to submit the request electronically, using a qualified electronic signature (EIF) or a personal identification code (PIN) issued by the NRA. It is important to ensure that you have submitted the necessary applications to use the NRA's electronic services if you intend to use the electronic filing method.
The deadline for submitting the request arises when it is necessary to issue a certificate to serve a foreign tax authority. This means that you do not need to submit the request in advance, but only when a specific need for such a certificate arises.
After submitting the request, the NRA will consider the application and issue the relevant certificate, which may be one of the following: a certificate of a resident within the meaning of the Agreement for the avoidance of double taxation to which Bulgaria is a party; a certificate of a resident within the meaning of Bulgarian law; or a decision refusing to issue certificate. It is important to note that if a refusal is received, it will be motivated, and you will have the right to appeal it administratively.
For the issuance of this certificate, the NRA does not charge a fee, which means that the service is free. This is regulated in the provisions of the National Revenue Agency Act, which exempts applicants from charging upon receipt of this important document.
In order to become a tax resident in Bulgaria, it is necessary to fulfill certain conditions provided for in the legislation. The status of tax resident is essential for individuals and legal entities who wish to be taxed under Bulgarian legislation, as well as to take advantage of the double taxation treaties that Bulgaria has concluded with numerous countries.
The first step to obtaining the status of a tax resident is to establish that your “center of vital interests” is located in Bulgaria. This means that your personal and economic interests are primarily related to Bulgaria. The criteria for determining the center of vital interests include your place of residence, the location of your family, real estate, as well as the place where you develop your main economic activity. If you spend more than 183 days in Bulgaria within a calendar year, this is a serious indicator that you may qualify as a tax resident.
Once it has been established that your center of vital interests is in Bulgaria or that you have resided in the country for more than 183 days, the next step is to submit an application for the issuance of a tax resident certificate. This certificate is an official document issued by the National Revenue Agency (NRA), which confirms your status as a resident for tax purposes in Bulgaria. The request can be filed in person at an NRA office, electronically through the NRA's system, or through an authorized person.
It is important to note that even if you are registered as a tax resident in Bulgaria, you may still have tax liabilities in other countries, especially if you generate income from abroad. In this case, it is possible to apply the provisions of the relevant Double Taxation Agreement that Bulgaria has concluded with your country of origin or residence. These agreements ensure that you will not be subject to double taxes and offer mechanisms to refund taxes paid abroad.
The final step in the process is to keep your tax resident status up to date by regularly filing tax returns and complying with the legal requirements for declaring income, including those received from abroad. The Bulgarian tax authorities will assess your compliance with these requirements and will continue to issue tax resident certificates on an annual basis or as needed to provide you with access to the benefits of the local tax regime.
The list of countries with which Bulgaria has concluded agreements for the avoidance of double taxation is an important tool for Bulgarian natural and legal persons who carry out activities or receive income abroad. These agreements, also known as SIDDs, aim to prevent a situation in which the same income is taxed both in Bulgaria and in the other Contracting State. The agreements not only regulate matters related to the taxation of income, but also establish mechanisms for the exchange of information between the tax administrations of the different countries, which contributes to greater transparency and cooperation in the tax field.
Although each agreement has its own specific conditions and provisions, the main idea behind them is to determine which country is entitled to tax a certain type of income, as well as to put in place mechanisms to offset taxes already paid in the other contracting state. This is especially important for individuals and businesses that have income from more than one country, ensuring that they will not be unfairly taxed in double taxation. In this way, the agreements support both international trade and investment, as well as the movement of people, while protecting the tax rights and interests of Bulgarian citizens and companies.
The table below presents the main details of each agreement, including the Contracting State, the dates of signature and entry into force of the agreement, as well as a link to the text of the agreement. This information is useful for anyone who wishes to become familiar with the specific terms of a treaty and to understand how they may affect his tax obligations in an international context. The agreements are an integral part of Bulgaria's tax policy and provide the framework within which tax issues are settled between the countries with which Bulgaria has economic and commercial ties.
